Mercator Petroleum will be acquired by Indian Oil Corporation (IOC) in a rare buyout by a government entity permitted by the Insolvency and Bankruptcy Code (IBC). Two people with knowledge of the issue indicated that lenders of the Mumbai-based onshore petroleum extraction company have unanimously voted in favour of IOC's resolution plan, which translates to a 46% recovery for financial creditors.
IOC has also promised to share with lenders for 15 years the profits from oil and gas exploration. A subsidiary of the shipping container company Mercator, which is listed on the stock exchange, and is also going through the IBC debt resolution procedure, is Mercator Petroleum. According to the individuals stated above, Indian Oil has made an upfront payment of 135 crore to Mercator Petroleum's financial creditors in exchange for them admitting to having 292 crore in claims against them. The recovery for lenders will exceed 46 per cent due to profit sharing agreement, said one person involved in the resolution process. IOC
has also proposed to pay 5 crore towards employees, trade creditors and government dues. The total claimed dues under these heads are about 191 crore. Mercator Petroleum's resolution professional Satish Kumar Gupta had admitted total claims of 483 crore. Gupta, who also successfully resolved Essar Steel under IBC, declined to comment. Besides IOC, the company's lenders had received expressions of interest from Invenire Energy, Sun Petrochemicals, and UTI Capital, a person cited above said. Only Sun Petrochemicals and IOC submitted firm bids, the person said. Lenders rejected Sun Petrochemicals' plan, which offered an upfront payment of 32 crore to secured lenders.
Mercator Petroleum's financial creditors are UTI Capital and Bank of Baroda with debt holdings of 41.2 per cent and 58.8 per cent, respectively. Since the Bank of Baroda has superior security, it would receive 60 per cent of the upfront payment, as per the approved plan. Mercator Petroleum owns one exploration block in the Cambay basin in Gujarat.
Investment phases of the block are complete and it is ready for development, as per a document circulated to bidders on the company. It had said the winning bidder could quickly commence commercial production from the two existing wells. Government-owned entities have rarely submitted resolution plans for bankrupt companies undergoing debt resolution under the direction of the National Company Law Tribunal (NCLT).
Examples of state-owned businesses acquiring troubled assets in the past through the IBC method include NTPC's acquisition of Jhabua Power, a member of the Avantha group, and Power Finance Corporation and REC's successful offer for Lanco Amarkantak Power. When it came time to submit a bid, ONGC decided against buying VoVL, an oil and gas exploration business owned by Videocon Industries.
